Verizon Communications, Inc.

Financial Analysis
Chris Goodman
Marylynn Huggins
Scott Anderson

Chris Goodman
Marylynn Huggins
Scott Anderson

Verizon Financial Analysis

Verizon Communications, Inc.

We have been hired to consult about Verizon Communications, Inc., and to also complete
a financial analysis of them. Our goal in doing so is to consider Verizon Communications, Inc.
as an investment and to decide what kind of investment is to be made, whether equity or debt.
In researching the history of this company we discovered that Verizon Communications,
Inc., is definitely a 21st century company that has a long reach into the history of
telecommunications in our country. The company has ties back to the beginnings of the
telephone business prior to the name we now recognize. Due to its origins it was interesting to
learn that Verizon Communications, Inc. shares an early connection with one of its main
competitors, AT&T.
Verizon Communications, Inc., based in New York City and incorporated in Delaware,
was formed on June 30, 2000, with the merger of Bell Atlantic Corp., and GTE Corp. Verizon
began trading on the New York Stock Exchange (NYSE) under the VZ symbol on Monday, July
3, 2000. It also began trading on the NASDAQ exchange under the same symbol on March 10,
2010. The symbol was selected because it uses the two letters of the Verizon logo that
graphically portray speed, while also echoing the genesis of the company name: veritas, the
Latin word connoting certainty and reliability, and horizon, signifying forward-looking and
visionary. (Bob Varettoni, Verizon Media Relations)
Government regulation largely shaped the evolution of the industry throughout most of
the 20th century. Then, with the signing of the Telecommunications Act on February 8, 1996,
federal law directed a shift to more market-based policies. This promise of a new competitive
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Chris Goodman
Marylynn Huggins
Scott Anderson

Verizon Financial Analysis

marketplace was a driving force behind Verizons formation. Verizon today is a global leader in
delivering broadband and other wireless and wireline communications services to mass market,
business, government and wholesale customers. At year-end 2012, the company had a diverse
workforce of 183,400 employees, serving customers in more than 140 countries. Verizons
corporate headquarters is located at 140 West St. in Manhattan, and it has a major operations
hub, the Verizon Center, at the former headquarters location of AT&T in Basking Ridge, N.J.

Competition
Verizon runs a close second to its main competitor AT&T nationally and China mobile in
the global marketplace. Theres also a surge in competition by Sprint and T-Mobile as they are
making changes in the way they service customers. Verizon has countered those measures with
positive results in the growth and stability of the company. Strategic steps are being taken to
place Verizon in a position to move forward in the coming years as a leader in the industry.
According to a recent article in the Seeking Alpha newsletter, Verizon is the market leader in
this segment, with 31% market share. The quality of the company's wireless services, and its
wide reach have been two key factors in making it the market leader in the segment.
(IAEResearch)
Verizon has also recently invested $711 million in infrastructure improvements to both
residential and business segments. (IAEResearch) With the vast improvements, as well as the
additions they are making to include the latest in technology, they are preparing to face the
competition for years to come. One more facet that keeps Verizon on top is their customer
relations. They strive to keep their customers happy and satisfied which leads to loyalty and
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Chris Goodman
Marylynn Huggins
Scott Anderson

Verizon Financial Analysis

retention of sales as new innovations emerge, and that leads to continued growth and higher
profits.

Verizon Communications, Inc.-Current Ratio Analysis

The following is a current ratio analysis of Verizon Communications, Inc. based on their
2012 financial statements. (Ernst & Young) This analogue uses several types of ratio
comparisons to show how Verizon Communications, Inc. has performed, and how these figures
compare to their Industry averages. We have analyzed the primary financial statements to
evaluate the strengths and or weaknesses of Verizon Communications and will use ratios to
evaluate the liquidity, profitability, and solvency of Verizon Communications, Inc.

Liquidity
The liquidity ratios measure the short-term capability of the company to pay its maturing
commitments, and indicate its ability to meet an unexpected need for cash. Following is a
summary of each liquidity ratio:
Current Ratio: Used to measure a companys liquidity and ability to pay short-term
debt. Verizon has a ratio of 2.62 :1 which is well above the industry average of 1.26:1
Acid-Test/Quick Ratio: Measures a companys immediate short-term liquidity and
complements the Current Ratio. Verizons ratio is 2.46:1, over double the industry
average of 1.02:1.
Receivables Turnover: Measures how quickly the company can convert its receivable
assets to cash. It measures the number of times the receivables are collected during the

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Marylynn Huggins
Scott Anderson

Verizon Financial Analysis

period. Verizon is able to collect its receivables almost 10 times a year. This is well
above the Industry average of 6 times per year.
Inventory Turnover: Measures how many times the inventory is sold during a period of
time. Verizon Communications turned its inventory 42.85 times during the year, or in
other words, approximately every 8 days. The Industry Average is 17.84 times a year,
or about every 20 days.

Profitability
Profitability is the ability of a company to make money, the reason they are in business.
Income, or the lack of it, affects the companys ability to acquire debt and equity funding.
Following are the profitability ratios:
Profit Margin: Measures the percentage of each dollar of sales that results in net
income. Verizons profit margin is 9.54%, the industry average is only 8.11%
Asset Turnover: Measures how effectively a company uses its assets to generate sales.
The number shows that Verizon produces $0.48 dollars of sales for each dollar invested
in assets. The industry average is $0.49 for each dollar invested.
Return on Assets: The overall measure of profitability. Verizon produces 4.61%, above
the industry average of 3.97%.
Return on Stockholders Equity: Measures profitability from a stockholders viewpoint.
This ratio shows how many dollars of net income the company earned for each dollar
invested by the owners. Again Verizon had a 31.94% return vs the industry average of
11.68%.
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Marylynn Huggins
Scott Anderson

Verizon Financial Analysis

Earnings-Per-Share: Measures the net income earned for each share of common stock.
Earnings-per-share serves as an indicator of a company's profitability. Verizon has an
earnings-per-share of 4.01.
Price-Earnings (PE) Ratio: Measures the market price of each share of common stock
to the earnings per share. The price earnings ratio reflects the investors assessment of a
companys future earnings. Verizons stock sold for 12 times the amount of what the
company earned on each stock. The industrys average is 17.33.
Verizon Communications considerably outperformed or matched the Industry averages in all of
the Profitability comparisons except the Price-Earnings (PE) ratio. Verizon almost tripled the
Industry average for their Return on Stockholders Equity.

Solvency
Solvency ratios are used to measure a companys ability to continue over a long period of
time. This information is used by long-term creditors and stockholders. Stockholders are
interested in a companys ability to pay interest as it comes due, and to repay the face value at
maturity. The Debt to Equity Ratio, Times Interest Earned and Debt to Total Assets are the
ratios used to determine a companys solvency
Debt to Total Assets: Measures the percent of the total assets to total debt, the higher the
percentage of debt to total assets, the greater the risk to a potential creditor. Verizon
shows 68%, the Industry average is 55%.
Times-Interest-Earned: This information is useful as an indication of the companys
capability to meet interest payments as they come due. It indicates the amount available
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Marylynn Huggins
Scott Anderson

Verizon Financial Analysis

to cover interest. Verizon has 12 times the amount, and the Industry Average is 5.35
times the amount. When compared to the industry average, Verizons debt ratio is a little
higher than the industry average, but its Times Interest Earned ratio is double the industry
average.

Conclusion of the Ratio Analysis

In using the Ratio Analysis method, we have been able to illustrate the relationship of
selected items in the financial statements of Verizon Communications, Inc. This comparison has
determined the strengths and weaknesses in the companys liquidity, profitability, and solvency.
We have then used this information to build a comparison of Verizon Communications, Inc. to
the average ratios established for their industry. This evaluation also shows that Verizon has
doubled the industry average in most of the Liquidity categories, and almost tripled the average
in Inventory Turnovers. The company has been able to collect its debts much quicker and turn
its inventory more times than the industry average.

Verizon outperformed or matched the industry in all but one of the Profitability ratios.
The ratios did indicate that Verizon Communications is doing much better than the industry in
relation to Debt to Equity, and Times interest earned. Verizon Communications, Inc. shows
higher than average numbers in most of the liquidity, profitability and solvency categories. So in
todays high-tech, fast-paced trend for wireless communication devices our numbers will support
the conclusion that Verizon Communications, Inc. is a great investment, and is going to be
around for a long time to come.
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Chris Goodman
Marylynn Huggins
Scott Anderson

Verizon Financial Analysis

Investment
When determining the investment in Verizon Communications, Inc. we have considered
investments in both debt and equity. They have recently issued the largest bond issue on record
totaling $49 billion in order to pay off older debts. This was shortly followed by another
issuance of bonds totaling $4.5 billion. Return on equity is 31.74% indicating that almost onethird of their net income is allocated to their shareholders. This is a significant amount
considering the industry average of 10.40%.
Verizon has shown stable investment ratios for investing in both debt and equity with a
higher return coming from equity. The ratios indicate that the return from equity will likely be
higher due to the fact that they consistently pay dividends and their stock price has remained
fairly stable recently and throughout the previous year.
Verizon is also well positioned in their market and own the largest portion of market
share at 31%. (IAEResearch) Their company policies match what they appear to be doing in
their daily operations. Their financial statements show good disclosure and transparency.
Innovations such as the FIOS network and their 4G LTE set them apart from their competitors.
Taking these factors into consideration its clear that the range and the quality of their coverage
dwarves most of the competition in its execution, with AT&T as a close second.

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Chris Goodman
Marylynn Huggins
Scott Anderson

Verizon Financial Analysis

Works Cited
Bob Varettoni, Verizon Media Relations. "The History of Verizon Communications." Jan 2013.
verizon.com. 10 March 2014
<http://www.verizon.com/investor/DocServlet?doc=verizon_corp_history_2013_v2.pdf>.
Ernst & Young, LLP. "2012 Verizon Annual Report." 26 February 2013. verizon.com. 10 March 2014
<http://www.verizon.com/investor/app_resources/interactiveannual/2012/downloads/12_vz_a
r_financial.pdf>.
IAEResearch. "Verizon Is Well-Positioned To Face The Competition." 18 march 2014. seekingalpha.com.
10 april 2014 <http://seekingalpha.com/article/2096413-verizon-is-well-positioned-to-face-thecompetition>.

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